Financing corporate elections.

Author:Schwartz, Andrew A.
Position:III. The Buckley Framework for Political Campaign Finance Regulation C. Methods of Regulation 2. Expenditure Limits through VI. Conclusion, with footnotes, p. 894-925
  1. Expenditure Limits

    An expenditure limit caps the direct spending on elections to a certain dollar value. This type of limit can be imposed on a candidate as well as those closely connected with a candidate. Such a limit may also sweep more broadly, generally limiting or banning "independent expenditures" made by third parties. In sharp contrast to a contribution limit, which only imposes a "marginal restriction" on the First Amendment, (234) a limit on expenditures imposes "direct and substantial restraints on the quantity of political speech." (235) For this reason, expenditure limits are held to the strictest scrutiny under the First Amendment, meaning that they must be narrowly tailored to achieve a compelling government interest in order to pass muster. Very few expenditure limits have passed this challenging test. (236)

    Recall that the only government interests that have been recognized as compelling in this sense are the concern over quid pro quo corruption and the avoidance of interference by outsiders to the political process. (237) The anti-corruption interest is clearly a strong one, but simply inapposite to expenditure limitations: With respect to expenditures by a candidate herself or by her campaign, there is no risk of corruption. One cannot corrupt oneself. And with respect to independent expenditures by third parties, the "absence of prearrangement and coordination ... alleviates the danger that expenditures will be given as a quid pro quo for improper commitments from the candidate." (238) (By contrast, an expenditure by a nominally independent person or entity that is actually coordinated with a candidate or campaign raises the risk of corruption and is treated as a contribution under the law.) (239) The important point is that quid pro quo corruption cannot be the basis for an expenditure limitation. Independent people and entities are free to spend as much as they want to publicize their views on candidates and issues. (240)

    This leaves just one potential government interest to support expenditure limitations, namely the goal of preventing outsiders to American polity--foreigners--from interfering with the domestic democratic process. Here, the Supreme Court has not directly spoken, (241) but it has summarily affirmed a lower court opinion that confirmed the government's authority to prohibit foreign nationals from making even independent expenditures that advocate for or against a specific candidate. (242) Even though this cuts against the First Amendment goal of encouraging speech on political issues, the government may do so in order to "prevent[] foreign influence over the U.S. political process." (243)

  2. Disclosure

    Rather than directly regulating the movement of money related to elections, as with expenditure and contribution limits, disclosure-based regulation requires that information about such expenditures and contributions be conveyed to the public. The identity of donors and how much they gave, as well as a record of campaign expenditures, are typical disclosure requirements. (244) Most disclosure-based campaign finance laws have been upheld as constitutional. Unlike limits on contributions or expenditures, requiring disclosure does not directly impede any speech, so the First Amendment infringement is lessened. (245) Also, there are important government interests in mandated campaign finance disclosure, including informing the electorate of where campaign money comes from and how it is spent and deterring quid pro quo corruption by publicizing the identity of large campaign contributors. (246) For these reasons, disclosure-based campaign finance regulation is generally consistent with the First Amendment.

    There is an important caveat, however. It is well known that disclosure of contributions in support of unpopular causes can subject the donor to threats, harassment and reprisals--from either government or private parties--and that this can "chill" core First Amendment activity. (247) This is a serious concern, but one that depends on a case-by-case determination. Thus, disclosure laws are generally acceptable, unless a party can establish that "there were a reasonable probability that the group's members would face threats, harassment, or reprisals if their names were disclosed." (248) In such a case, requiring disclosure would run afoul of the First Amendment. (249)

  3. Public Financing

    A final method of campaign finance regulation is public financing, whereby the government itself provides funds to qualifying candidates. (250) The best-known example of public financing is the Presidential Campaign Fund, (251) which "has raised millions of dollars per presidential election cycle, and more than $1 billion since its inception." (252) Beyond the Presidential Campaign Fund, many states and localities have also implemented their own forms of public financing. (253)

    The primary goal of public financing is to reduce the need for candidates to solicit private money to run their campaigns; thereby reducing the risk of corruption that monetary contributions necessarily entail. (254) Most importantly for present purposes, however, is the point that public financing, standing on its own, does not infringe on the freedom of speech guaranteed by the First Amendment. It is really just a question of whether the government has the constitutional authority to spend money in this way, and the Supreme Court held in Buckley that the government does indeed possess that power. (255) The Buckley Court further clarified that the government may impose fair and reasonable conditions on those who accept public financing and also may use its judgment to provide funds only to the most-promising candidates. (256)

    Subsequent cases, including Arizona Free Enterprise Club's Freedom Club PAC v. Bennett, (251) and Davis v. FEC, (258) have struck down certain conditions as imposing an unreasonable burden on the First Amendment rights of the candidates who accept public financing and their supporters. The constitutional problem in those cases was that they imposed a penalty on candidates that exuberantly exercised their First Amendment right to spend money to inform and persuade voters. In the statute at issue in Arizona Free Enterprise, for instance, if a campaign were to spend or raise more than her competitor, the latter would receive a benefit in the form of cash contributions from the public financing system. (259) But this link between public financing and benefiting a competitor is not necessary to the basic concept of public financing. Standing alone--fairly designed and administered--public financing remains on firm constitutional footing.

    1. A Summary of the Buckley Framework

      After forty years, the Buckley framework has become a firmly established component of our constitutional law. (260) This well-developed body of doctrine provides a set of rules for analyzing political campaign finance regulation, one that is primarily designed to prevent corruption while still giving a challenger a fair shot to unseat an incumbent. At its most basic, the Buckley framework can be summarized as follows: Expenditure limits generally violate the First Amendment, except to the extent that they impact only foreigners. By contrast, most other types of campaign finance regulation are permissible, including reasonable contribution limits, disclosure mandates (unless there is a probability of harassment in a given instance) and public financing. (261) Now that the Buckley framework has been laid out, the next Part presents the central claim of this Article, one premised on a connection between the Buckley framework and the Blasius doctrine of corporate law.


      An animating concern of the Buckley framework is the fear that incumbent government officials might try to limit political campaign finance so as to hinder challengers and entrench themselves in office. (262) The need to defend popular sovereignty against this sort of behavior was dubbed the "republican rationale" above. (263) A parallel concern over incumbent entrenchment is well known and much discussed in the corporate context. (264) Concerns over an entrenched, self-perpetuating board of directors are at the core of Unocal v. Mesa and other landmark corporate law cases, (265) as well as the subject of much of the leading commentary on the field, including Berle & Means' and Jensen & Meckling's foundational works. (266) With respect to corporate elections, it takes little imagination to anticipate that an incumbent board could regulate the financing of corporate elections for the nefarious purpose of hindering insurgent campaigns and perpetuating themselves in office. Such behavior could obviously destroy the foundational principle of shareholder sovereignty on which corporations are supposed to be governed.

      In the political sphere, we apply the Buckley framework to prevent the government from enacting campaign finance laws that interfere with the people's ability to assert their sovereign power through democratic elections. (267) In the corporate context, what legal rule should we apply? There are no cases on point, in part because corporations have only just begun to regulate corporate campaign finance in the past year or two. (268) It is thus an open question and we must reason from first principles. This Part makes the claim that, when a corporate board acts to regulate campaign finance, a reviewing court should employ a corporate-law analog to the Buckley framework, and that this analog is the Blasius doctrine. I call this the "Blasius-Buckley framework" and elaborate on this below.

    2. The Blasius Doctrine

      The so-called "Blasius doctrine" of corporate law is named after a well-known Delaware Chancery Court decision decided in 1988.269 The doctrine is easily stated: If an incumbent board of directors takes an action "for the primary purpose of impeding the exercise of...

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